Ontario Court Finds Non-Ontario Payrolls Count Toward Severance Threshold

In its recent ruling in Hawkes v Max Aicher (North America) Limited, 2021 ONSC 4290, the Ontario Divisional Court ruled on an application for judicial review that the entire payroll of an employer that terminates the employment of an Ontario-based employee should be used to determine whether the employer’s payroll is at least $2.5 million per year, and therefore whether severance pay may apply. This decision reversed a ruling from the Ontario Labour Relations Board (OLRB) that was based on previous case law finding that only an employer’s Ontario payroll was considered for the severance pay threshold.

Background

The applicant, Doug Hawkes, worked at the same location from 1977 to 2010, and continued working there after Max Aicher (North America) Limited acquired the company, from November 2010, to October 2015. After Aicher terminated his employment, Hawkes filed a complaint with the Ministry of Labour, claiming that he was owed termination, vacation, and severance pay. In order to establish the entitlement to severance pay, Hawkes relied on the total payroll of his former employer (not merely its Ontario payroll) to meet the $2.5 million threshold.

The employment standards officer (ESO) assigned to the complaint found that Hawkes was entitled to termination and vacation pay, but not severance pay. Hawkes appealed the ESO’s decision to the OLRB. The OLRB affirmed the ESO’s decision that Hawkes was not entitled to severance pay because the employer’s Ontario payroll was less than $2.5 million, and that salaries external to Ontario should not be factored into the calculation of the severance pay threshold. Hawkes then requested that the OLRB’s decision be judicially reviewed to determine whether it was unreasonable to exclude payroll external to Ontario from the severance calculation.

The Court’s Decision

The standard of review for the Ontario Divisional Court’s review of the OLRB decision was that of reasonableness, as set out in the Supreme Court of Canada’s decision in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65, which suggests significant deference to the OLRB in its area of expertise. The court defined reasonableness as “concerned with the existence of justification, transparency, and intelligibility within the decision-making process, as well as with whether the decision falls within a range of possible, acceptable outcomes that are defensible in respect of the facts and law.”

The court summarized the OLRB’s three reasons for rejecting to extend severance determination to include assessing payroll outside Ontario: first, section 3(1) of the Employment Standards Act, 2000 (ESA) “restricts the reference to an employer’s payroll in [section] 64(2) of the ESA to its payroll in Ontario; second, the circumstances cited by Hawkes in Paquette c Quadraspec Inc., 2014 ONCS 2431 (which extended payroll evaluations to include national payrolls) were “factually different” from those in the present case; and third, the OLRB saw no reason to depart from pre-Pacquette decisions. The court found these reasons “illogical and the [OLRB’s] analysis flawed.”

The key provisions of the ESA at issue are reproduced below:

To whom Act applies

3 (1) Subject to subsections (2) to (5), the employment standards set out in this Act apply with respect to an employee and his or her employer if,

(a) the employee’s work is to be performed in Ontario; or

(b) the employee’s work is to be performed in Ontario and outside Ontario but the work performed outside Ontario is a continuation of work performed in Ontario.

Entitlement to severance pay

64 (1) An employer who severs an employment relationship with an employee shall pay severance pay to the employee if the employee was employed by the employer for five years or more and, (…)

(b) the employer has a payroll of $2.5 million or more.

Payroll

(2) For the purposes of subsection (1), an employer shall be considered to have a payroll of $2.5 million or more if,

(a) the total wages earned by all of the employer’s employees in the four weeks that ended with the last day of the last pay period completed prior to the severance of an employee’s employment, when multiplied by 13, was $2.5 million or more; or

(b) the total wages earned by all of the employer’s employees in the last or second-last fiscal year of the employer prior to the severance of an employee’s employment was $2.5 million or more.

In addressing the first point, the court noted that the geographically limiting language included in section 3 of the ESA was not included by the legislature in section 64(2), and this omission is meaningful. According to the court, the OLRB’s proposition that the Ontario legislature could not legislate to take into consideration payroll outside the province was wrong, as case law and academic commentary described how considerations external to the province could be used to inform legislative decisions that were within the legislature’s purview of that province’s government.

On the second point, the court acknowledged that although the OLRB was not bound by Pacquette, it should have considered the court’s ruling in that case. According to the court, the OLRB’s distinguishing Pacquette from this instance on one point was “trivial,” and another point was “erroneous.” Specifically, the court found that   considering factors external to Ontario could not have meant only elsewhere in Canada, and not have included anywhere else. Moreover, the court saw the distinction as erroneous because as explained in Pacquette, considering payroll in other jurisdictions “does not place [any] requirements on employers in other jurisdictions.”

On the third point, the court found that main precedent for excluding payroll outside Ontario   relied on a different set of factual circumstances, which when cited by later adjudicators did not actually support the proposition claimed. According to the court, other decisions that used the same line of reasoning as the OLRB did in this matter were stated to be wrong for the same reasons.

The court also determined that the OLRB failed to consider the remedial purpose of the ESA. The court cited case law and parliamentary debates to support the broader interpretation of the protections of the ESA. The court also rejected the argument that the OLRB cannot compel the production of payroll documents external to Ontario, noting that enforcement of the ESA is actually the role of ESOs, who do indeed have this power for employers operating in Ontario.

Ultimately, the court found there is only “room for a single reasonable interpretation of the statutory provision.” The court therefore ruled that non-Ontario payroll should be included in determining whether an Ontario employer meets the $2.5 million threshold for severance pay under section 64.

Michael C. Comartin is a partner in the Toronto office of Ogletree Deakins.

John T. Wilkinson is a law student, currently participating in the summer associate program in the Toronto office of Ogletree Deakins.